Readers' comments

With the PRI in power once again, I think this articles predictions area all going to fail. What awaits Mexico is a crisis ten times worse than that of Spain or Grece. Since the only purpose of Carlos Salinas is to make sure that Mexico becomes a living hell.

So in your mind Carlos Salinas in an all-powerful demon. Fine. Let´s assume he is. Now, why on Earth would he want for Mexico to become a "living hell"? And how would he go about turning this fiery project into reality?

No, Carlos Salinas did not cause the economic crisis of the 90s. How could he, and WHY would he?

The main cause what that in those times the peso-dollar exchange rate was fixed. Then we had a huge dollar influx when Carlos Salinas implemented good economic policies from 88 to 94. But then in 94 we had the Zapatista uprising, and the murders of Colosio and Massieu. This caused a capital flight. Eventually Banco de Mexico ran out of dollars, could no longer maintain the exchange rate, and let the peso float. This caused an explosive devaluation, and chaos ensued.

Now, if you are one of those who thinks that Carlos Salinas actually stole billions upon billions of pesos from Mexico, and that THIS caused the economic collapse, I´m sorry to tell you, your cartoonish worldview is absolutely wrong.

I am Mexican and this series of articles sounds more like a propaganda campaign paid by the PRI (any Mexican knows they are willing to buy any good news they can feed the masses) than a reality.

Yes, Mexico has competitive advantages (such as a a huge border with the US and low wages comparable to other industrialized counties) that should give it a level of prosperity similar to Canada's, but it has always had these advantages, and guess who was in charge for most of the 20th century? The PRI.

The PRI is proposing a semi privatization of the state oil company which it itself blocked in congress when the PAN proposed it. As was stated in a previous article from The Economist, the leader of the Oil Workers Union (which for practical purposes is the real owner of PEMEX) is a senator from the PRI and it is very hard to imagine him giving up that power.

Countless states and municipalities governed by the PRI are practically bankrupt and Peña has already proposed a fund to rescue them (sound familiar?).

The only thing you need to know to tell you the type of person that Peña is, you can find out by researching about the death of his first wife, Mónica Pretelini. His wife died a "mysterious" death, which Peña was unable to explain in an interview with Jorge Ramos from Univisión. This happened when Peña was governor, and any Mexican knows that governors have quasi dictatorial powers in their states, meaning there was never any investigation about the matter. He later admitted that he was unfaithful and fathered two illegitimate children while he was married; who knows what other information she knew about him.

His predecessor as governor was widely considered one of the most corrupt people in Mexican politics, with millions of dollars in mysterious assets, yet Peña did nothing to address the situation.

Mexico could have a bright future, but any Mexican who thinks this will happen under the dictatorial PRI suffers from Stockholm Syndrome.

In addition, the United States will suffer a big recession or depression in the coming years when people refuse to lend them any more money, based on the unpayable amount of debt they have accumulated and that will only get bigger on the coming years (over 1 trillion dollar deficits each year). This is not an if, but rather a when. When this happens, the Mexican economy will also suffer; let's just hope the PRI does not empty the government coffers before this happens, which I find very unlikely.

Very well argued. And, the criminality - kickback aspect of doing business has been an issue as well. I too am very pleased to see the Mexican economy picking up but, recall not 10 or 15 years ago but, closer to 20-30 years ago the fundamental problem you raise was not the Countries rich natural resources & cheap labor but, the Mexican willingness to allow capital flight, organized crime & the political favors one receives as being the most server of handicaps. B.G.

"the United States will suffer a big recession or depression in the coming years when people refuse to lend them any more money"
Oh, it´s much more complicated than simple lending, my friend. You see, the US manufactures the world currency, the dollar. So people across the world are not really lending money to the US, they are buying chips (dollars) to play on the world´s largest casino (Wall Street).
So if you don´t want to "lend" the US money (buy their chips), whose casino chips will you buy, and what roulette will you play? Europe? Asia? Latin America? Nope. The US has THE largest casino in town.
So I don´t know what´s gonna happen (If I knew I would be in Stockholm receiving my Nobel prize), but one thing I can tell you, you don´t know either.

You are right about the fact that the dollar is still trusted not because of its virtues, but because it is among the "least bad" the currencies. However, paper money without any commodity to back it up is a time bomb waiting to happen.

The debt is just like drinking more and more in order to avoid the hangover, but sooner or later, the hangover will come. At the end of the day, dollars are simply pieces of paper, and the ponzi scheme of the US government will crash under its own weight. Again, I can not say when that will happen, because it is a matter of trust in the dollar, but there will come a time when the situation will become unsustainable.

What I am more worried about, specifically about Mexico, is that the federal government will bail out the states and municipalities. When that happens, then we will know we are in the path to fiscal disaster.

Thank you, however, regarding capital flight, what I believe is that the problem is not controlling capital so that it can not leave, since that is an authoritarian position, but rather creating the conditions for investors to keep their capital in Mexico...

" paper money without any commodity to back it up is a time bomb waiting to happen."

No it isn´t. Fiat money is a great invention. Unfortunately it can, and has been abused. It has nothing to do with backing it up with commodities. Rather, governments are supposed to print only the money that the economy demands for its growth. Trying to push the growth of the economy by printing money only works for a while, then bubbles form, and burst, with terrible consequences.

"At the end of the day, dollars are simply pieces of paper, and the ponzi scheme of the US government will crash under its own weight."

I´d be happy to take your pieces of paper if you want. Dollars are NOT simply pieces of paper, simply because people are willing to provide good and services to me in exchange for those pieces of paper. They are a valid representation of wealth. And there is no Ponzi scheme. How could the dollar crash? Crash into WHERE? The dollar IS the field. So let´s say you don´t want to hold dollars anymore. So you sell them. Fine. But if you sold them, someone bought them, right? The dollars did not dissapear. And if a whole bunch of people and company dump the dollar, it goes down in value vs other currencies, and then OTHER people start to buy it up, stabilizing its price. There is no way for the dollar (or any other currency) to be totally dumped. The only way the dollar can collapse is if the entire physical economy of the US collapses.

As to the Mexican government bailing out states and municipalities, it would be like you "lending" money to your children. There´s no lending, really. You are basically maintaining them, as always. I woudn´t worry too much.

"Rather, governments are supposed to print only the money that the economy demands for its growth. Trying to push the growth of the economy by printing money only works for a while, then bubbles form, and burst, with terrible consequences."

You are right that if governments only print the money that the economy demands, the system could work. However, anyone knows that government officials will seek more power and more control as long as they can get it, not less. Commodity standards restrain governments from creating bubbles. That is the whole point of a commodity standard, to provide a restriction for governments not to print too much money.

"Dollars are NOT simply pieces of paper, simply because people are willing to provide good and services to me in exchange for those pieces of paper. They are a valid representation of wealth."

Again, you are also right about dollars having value because people are willing to provide goods and services for them. However, the problem will arise when people no longer will want to exchange them for goods and services.

"So let´s say you don´t want to hold dollars anymore. So you sell them. Fine. But if you sold them, someone bought them, right? The dollars did not disappear. And if a whole bunch of people and company dump the dollar, it goes down in value vs other currencies, and then OTHER people start to buy it up, stabilizing its price."

The point here is not that the dollar will disappear. The point is that its value will decrease dramatically if the US does not control its debt problems (and it shows no signs of reducing their trillion dollar annual deficits).

"And there is no Ponzi scheme."

Social security in the United States IS a Ponzi scheme. It is not counted as part of the 16 trillion dollar national debt, and it is by itself at least 4 times larger than the debt (again, these are current figures, and it seems that in the near future these numbers will only continue to grow).

As for the "regular debt", the clock is ticking on the moment when the US will no longer be able to pay less than 1 percent interest on its debt. And that is the problem, when interest rates inevitably go up in the United States, that´s when the crash will come.

Again, the crash is not inevitable, theoretically, but no politician will undertake the changes required because they will involve fiscal discipline and admitting that the US is broke. The dollar will not disappear, but the net value of american assets will dramatically decrease. And that is not a good thing for Mexico.

That´s very much a 19th century economic thought. True, it would restrain governments from creating bubbles, but it also restrains economies from growing. Think it through: imagine that each dollar out there had to be backed in that value in gold. How could economies grow? We would have to be fighting over gold so we could grow; that´s exactly what used to happen in the 19th century and before, and it was an absolute mess. Read this article, it summarizes the point quite well:http://blogs.telegraph.co.uk/finance/edmundconway/100008531/return-to-th...

"the problem will arise when people no longer will want to exchange them for goods and services."

How and why, exactly, would that happen? You don´t want your dollars? Fine. What do you do with them, throw them away? No, you sell them to someone else who DOES want them. Don´t you see this?

" The point is that its value will decrease dramatically if the US does not control its debt problems"

How, exactly, will its value decrease? Please describe the mechanism.

"Social security in the United States IS a Ponzi scheme"

So it is. But the dollar isn´t. And I see I´m failing to convey to you what I mean: the US government debt is not AT ALL like the debt you and I can incur. It´s the same word, "debt", but very different meanings. To start with, the US government can print money, and you and I can´t. Plus, if I don´t pay my debts, maybe the repo guys will show at my door. That won´t happen to the US. So there is really very, very, VERY little risk of the dollar collapsing. There´s just no mechanism, other than the physical destruction of the US.

"I am Mexican and this series of articles sounds more like a propaganda campaign paid by the PRI "

Typical left-wing paranoia. "Sospechosismo" at it´s fullest expression. In the left wing mind, whatever does not make sense to their worldview, must be caused by corruption.

"and guess who was in charge for most of the 20th century? The PRI."

That is correct, the PRI. And I happen to know the PRI´s history, year by year, blow by blow, and I can tell you that it is a FACT that thanks to the PRI, Mexico industrialized during the 20th century. Yes they are corrupt blah blah blah. But the fact of the matter is, the PRI party dictatorship held the country together through very tough times, and made it grow. You only remember the crises of the 80s and 90s, but forget the "Mexican Miracle" of the 50s and 60s.

"The PRI is proposing a semi privatization of the state oil company "

Nonsense. Pemex will always be a public company; it´s in the Constitution, and it´s pretty much impossible to change that. Private companies have been offering services to Pemex for the longest time. What matters is that the oil will always belong to Mexico.

"Countless states and municipalities governed by the PRI are practically bankrupt"

That´s because most states and municipalities are governed by the PRI, because people VOTED for the PRI. Had they been governed by PAN or PRD, they would be equally bankrupt.

"The only thing you need to know to tell you the type of person that Peña is, you can find out by researching about the death of his first wife, Mónica Pretelini."

You should leave this type of gossip for TV y Novelas.

"In addition, the United States will suffer a big recession or depression in the coming years when people refuse to lend them any more money,"

People don´t lend money to the US. People buy dollar denominated securities to invest in Wall Street, the largest financial market in the world. That´s not going to stop any time soon.

You know, I used to think like you about the PRI. When I was 16. But then I got an education, read a lot, learned about economics, read IN DETAIL Mexico´s history, and understood the truth. I invite you to do the same. Meanwhile, if you have any questions, I´d be happy to answer them.

I think the bad management of states and municipalities is more bad administration of finances and political clientelism than for just one political group unfortunately, because of not enough laws to balance their power and influence to the capacity of the ppl to make them responsible for their actions.
The new law on control of state and municipal finances is a good start but we need to do more political reforms to make responsible heads of states and municipalities of bad political or economic management by a fault of their own or one of their team, but this definitely isn´t a characteristic of just one party but of all the three big ones IMO.

Also it would not hurt ppl to vote more in base of positive results of partys time in office than on the candidates hability to talk badly about the other candidate, that should keep both political parties and ppl focused in what is really important and needs to be done instead of the failings of one or other political group.

Zerge: So, if I'm reading you well (I'm no economist) the US has the power to make wealth flow to them by simply printing money and having a world willing to have it as base currency? It seems to me like a great business! The gringos have in the Fed a magician's never-ending sack of money!!

Indeed. But remove the "simply". And it is a great business, but it´s no magic, and it´s not never-ending. You have to see it as the legitimate business proposition that it is: the US offers the world a stable currency, backed by the rule of law and a deep and dynamic financial market. In return they get wealth and power. Nothing wrong with this. The problem is the mismanagement of the US dollar (and all other currencies). Politicians still think you can force the economy to grow beyond its natural rhythm by pumping it full of cash. That works for a while, but then bubbles and chaos ensues.

Investors are already buying Mexico´s story: i) Large M&A transactions (Grupo Modelo's US$ 22 blln acquisition of 49% interest by Inveb and Sherwin Williams US$ 2.4 blln acquisition of Comex among other), ii) 6 IPO´s in 2012, iii) Many Fibra´s filing in the Mexican stock exchange raising capital to deploy in infrastructure, energy and other projects, and iv) Significant portfolio investments flowing into Mexico.
Energy reform will happen under Peña Nieto´s mandate - not through PEMEX’s privatization though.
My recommendation is to believe in Mexico and make it our story - Let's work hard to make it happen. Nobody can nor will do it but us!

One way or another, Mexico is going to grow, the difference relies on how much will it grow?, if internal variables are to be managed properly then the promised 6% could be reached, with the only threat of not maintaining the long term rate of growth if the country strongly relies on exportations to US market. On the other hand, as result of the interaction between the world macroeconomic variables the country could have a minor growth rate, thus delaying the opportunity to beat Brazil (at least on the short term). Let's hope things turn out right for Mexico.

It’s time for us Mexicans to work hard and believe the optimistic scenario we are facing considering the challenges we have to address. That is one of the main differences with Brazil - You never see a Brazilian bad-mouthing its country. Mexico deserves good business men, entrepreneurs and politicians.
Let’s hope this is our term because the table is served.
Godspeed!

I always say that Brazilians are only better than Mexicans in two way: football (and we are contesting that -- we won gold in London 2012), and speaking great thing about their country.

For some reason Mexicans love to bad-mouth our country. We are the worst this, the worst that. For sure we have some serious problems (which country does not?), but we have a great deal of awesome things that we can leverage to grow faster.

If Brasil were next to the U.S. and a short flight away from Canada,it too would have an inferiority complex of it "isn't good enough".

Confidence is good. Acknowledging reality and facing your problems through a microscopic lense and not a rosy one will move the country forward (for all, not just those at the top.) Germans are some of the biggest naysayers about their own country, but they sure are doing better than just about the rest of Europe.

Well, you do get certain groups in Brazil complaining about the country, usually people in the upper ranks of the middle class complaining about the cost of imported luxury consumer goods like iPhones... the cost of an iPhone in Brazil is very low on the list of problems.

I also think this kind of comparison are more press inventions to fill columns in newspapers. It's fairly easy to line up almost any two countries and find something you can compare for the sake of an article. The basis of this seems to be "both have oil, make cars and are latinos".

Mexico is detaching from Latin America in that it is quickly transforming into a manufacturing powerhouse capable to compete with China, Taiwan or South Korea in manufacturing high-tech products at lower costs and it is already beating them up on several industries: large appliances, flat television screens and others.

The problem for the rest of Latin America is that it is increasingly dependent on commodities, Brazil, Argentina, Uruguay, Chile, Colombia, Peru, Venezuela, they are all exporting oil, soy beans, iron ore and many other commodities, but rather than competing vs China, they are becoming China`s raw material suppliers.

"Each time a new field is discovered the company allows others to go into a decline." Ah. So the problem is Latin mismanagement, not geology? Does the Wikipedia entry on Mexico's petroleum industry have it all wrong, then? It implies Mexican oil peaked in 2005. The graph does look rather Hubbert-ish to this clueless observer. Oh, wait, peak oil is a conspiracy and a hype and it's been debunked, right? Please look up scotomization.

The article is over optimistic. Very entrenched economic and political interests have and will continue to get on the way of true reforms that change the status quo. More so now that the PRI is back ("today's PRI" relied heavily on the support from the party so called dinosaurs to get elected - they will want their favours repaid). Still, the PRI knows that they can get kicked out in six years time. It's not like before. So a combination of these two variables is something that has not been tested before in Mexico. Let's see which one prevails. History says one thing will and common sense and hope another.

I agree it's optimistic in thinking the entrenched economic and political interests will massively change - but there are still many global, regional and national elements that line up rather well for Mexico - so even with some level of reforms, the outlook would seem favorable in my opinion, and 5-6% growth does not seem out of reach.

Mexico grew out of its agricultural state and became an industrialized country in the 20th century thanks almost exclusively to the efforts of the PRI party dictatorship. Exactly what´s happening in China today.

So now that we are a democracy in Mexico, we forget the good things that the PRI gave Mexico, and only focus on the bad things. Selective memory at work.

During my economics studies, I remember finding a dusty research paper written back in the 60s or 70s, which I found at a library. It talked about how back in the 40s and 50s, one of the leading causes of death in Mexico where mosquito-bourne diseases such as dengue. It was the 2nd or 3rd largest cause of death, if I remember correctly. Can you imagine that? But then the PRI government launched a multiyear, nationwide anti-mosquito campaign, and in a matter of a few years, those diseases almost disappeared. Nowadays, maybe one or two people a year die of dengue.

Corrupt? Sure. But they saved us from dengue. Just one of many stories nobody knows about.

Due to the factors outlined by the author, it is possible to believe that Mexico is becoming more competitive with China if considering labor and transport costs. That is important if talking about a low tech industry like clothing for example. But those kind of businesses are not high profit margin ones. The money is to be made in producing new generations of I-pads. not new blue jeans. There, Mexico is still not competitive and is unlikely to become so.

Transport costs play a big role in bulky items like fridges-freezers, cars, large flat screen TV sets, cooking ranges, airplane fuselage parts, electric distribution equipment, etc. Which are all now among Mexico's main exports. Regarding blue jeans and garments, which are cheap to move around the globe, Mexico probably won't be able to regain competitive edge over the likes of Bangladesh, Vietnam or the Central American countries; but Mexico can tap the market of high end fashion subcontracted manufacturing, where time to market is critical. On seasonal items and electronics, of course, no one will be able to beat China soon, with its immense labor pool and deep supplying chains; but Mexico has a good chance of carving itself a place in a series of profitable markets.

is your reference from the 90´s? before writing such statement, take a look at the nowadays major industries in Mexico; automotive, aeronautics, electronics, steel (including state of the art own technologies), etc, etc. with important hubs in central, west and northern Mexico

Mexico is already the world’s biggest exporter of flat-screen televisions, BlackBerrys and fridge-freezers, and is climbing up the rankings in cars, aerospace and more. Mazda and Toyota have announced a partnership to produce a new vehicle for North America market. Mazda will build a subcompact economy car for North America based on its own Mazda2 at its soon-to-be-finished facility in Mexico for sale under the Toyota banner. The plant will build around 50,000 units per year once production begins in during the summer of 2015
Also Audi has announced that it has settled on Mexico for its newest production facility in North America.
The new plant will house production for the successor to the current Audi Q5 after the facility is up and running in 2016. Expected annual output capacity is projected to be 150,000 units. Construction work on the plant buildings is slated to begin in mid 2013. This is just the begining, if you wanna keep looking down to Mexico...thinking on Blue Jeans, It's up to you

I work for one of the major tech companies and Mexico has more qualified software and hardware engineers than China does. Also, their is not a lot of technology in a Ipad. It is an expensive toy. Anyone can be taught to assemble within 5 days.